Homeloans and Resimac in $13 billion mortgage tie-up

ASX listed non-bank lender Homeloans and Resimac have agreed to a merger that will create a combined $13 billion portfolio in Australia's mortgage market.

In a statement to the Australian Securities Exchange, Perth-based Homeloans said the tie-up would help the company gain access to Resimac's securitisation program to finance new lending while the entity would expand distribution channels to originate new loans.

"The simple answer is we as an organisation can unlock value in Resimac that they couldn't unlock themselves and vice versa," Homeloans chief executive Scott McWillliam told The Australian Financial Review.

"While we are in the same sector and selling the same product our expertise are in different parts of that process," he said.

Resimac's business model involves selling mortgages that have been financed by raising funding in the wholesale market, while Homeloans originates loans that are funded through other lenders, which include banks and non-bank lender such Resimac.

Related Quotes

Company Profile

The combined loan portfolio of the entity will exceed $13 billion with new annual originations exceeding $3 billion over the 12 months to June 30. Resimac's loan book stood at $5 billion at the end of June.

Resimac's shareholders will account for 72.5 per cent of the register following the deal, with its major shareholder Ingot Capital set to hold 57.3 per cent of the newly merged entity. Homeloan's major shareholders are Macquarie and National Australia Bank, which own 20 per cent and 18 per cent respectively.

The newly created entity would have a market capitalisation of around $185 million based on the current share price and the newly issued shares.

Homeloan shares gained 2.2 per cent to 47¢ on Wednesday following a trading halt on Tuesday ahead of the announcement. That valued the company at $50 million, which suggests the combined entity could be worth around $180 million.

Under the suggested structure Warren McLeland, the chief executive of Resimac, will become managing director of the new entity, while Mr McWillliam will be appointed as joint deputy managing director along with Resimac's securitisation executive director Mary Ploughman. A new independent chairman is set to be appointed.

Resimac is a well-known issuer in the residential mortgage backed securities market, raising billions of funding through the issuance of bonds backed by prime and non-conforming home loans. So far in 2016, Australian lenders have raised more than $8 billion with non-bank lenders accounting for $5 billion of the issuance.

The transaction comes amid heightened activity in the non-bank lending sector, as Queensland based lender Fistmac has put itself up for sale with a $500 millon price tag. That business generated a reported $20 million of annual profits. It follows the 2015 listing of Pepper Home loans, which has a market value of $440 million.

Some industry experts speculated that the activity stems from a need for both equity and debt capital from non-bank lenders to continue to grow their lending books and nibble away at the market share of the big four banks that have generated strong profits from mortgage lending. Debt investors also said that securitisation funding was "getting trickier to obtain" and while scale may lower some costs, it could increase funding margins to execute larger or more frequent raisings.

"You are going to see more consolidation as this sector becomes more competitive and margins become tighter," Mr McWilliam said.

"Smaller organisations needs to partner with big organisations and business models in the past don't work for opportunities in the future.

"This transaction creates further value we couldn't create organically and it accelerates strategies the board is looking to implement as we grow volumes and earnings."